Energy Emergencies Vs. Manufactured Crises: the Limits of Federal Authority to Disrupt Power Markets
Total Page:16
File Type:pdf, Size:1020Kb
Energy Emergencies vs. Manufactured Crises: The Limits of Federal Authority to Disrupt Power Markets SHARON JACOBS ARI PESKOE Associate Professor, Director, Electricity Law Initiative, University of Colorado School of Law Harvard Law School Environmental and Energy Law Program Board Member, Getches-Wilkinson Center for Natural Resources, Energy, and the Environment | June 3, 2019 | Table of Contents Keeping the Lights On: Resource Adequacy and Operational Standards ____________4 Reliability Before Regulation _______________________________________________________________________4 Modern Reliability Regulation ______________________________________________________________________6 Reliability Performance ___________________________________________________________________________7 Delivery Disruptions ___________________________________________________________________________7 Generation Resource Mix _______________________________________________________________________9 Energy Emergency Authorities _____________________________________________________ 10 The Federal Power Act ___________________________________________________________________________11 The Fixing America’s Surface Transportation Act _____________________________________________________12 The National Energy Act of 1978 __________________________________________________________________13 The Defense Production Act ______________________________________________________________________14 Title I _______________________________________________________________________________________15 Title III ______________________________________________________________________________________15 Manufacturing a Crisis to Bail Out “Fuel-Secure” Generators _____________________ 16 Perry’s Memo and DOE’s Study ___________________________________________________________________17 DOE’s Bailout Proposal __________________________________________________________________________19 Industry and DOE Reinforce Bailout Push ___________________________________________________________21 FirstEnergy Cries Emergency ______________________________________________________________________22 DOE Pivots to National Security ___________________________________________________________________23 Bailout Efforts Fizzle ___________________________________________________________________________ 24 The Misuse and Abuse of Energy Emergency Authority ____________________________ 25 Triggering Events _______________________________________________________________________________26 Authorized Actions _____________________________________________________________________________28 Duration of Remedies ___________________________________________________________________________31 Conclusion __________________________________________________________________________ 31 Appendix: DOE Invocations of Federal Power Act Section 202(c) __________________ 32 Endnotes ____________________________________________________________________________ 33 Energy Emergencies vs. Manufactured Crises | Sharon Jacobs and Ari Peskoe 2 Reliable electric service is built upon long-term Since early 2017, the current Administration has planning and requires constant coordination among flirted with invoking these powers to bail out coal- myriad actors. Industry protocols and market rules fired power plants. This paper examines statutes keep the system in balance by aligning operations that provide federal agencies or the President with with the laws of physics that govern the movement emergency powers over energy assets, including of electric energy. Economic incentives enshrined in a law related to “defense critical materials” that law, market prices, and operational standards inform is discussed in a leaked Administration document long-term investment decisions. Collectively, these that purports to justify a bailout. We answer three protocols, rules, and incentives assist generators, key questions about these federal laws: 1) What utilities, and regional grid operators in meeting conditions allow DOE to declare an “emergency” or consumer demand at every instant. to otherwise invoke these statutes? 2) What powers does DOE have under these statutes to alleviate Energy emergencies interrupt these complex emergency conditions or to respond to national but orderly operations. Such emergencies are security threats? And, 3) When do these statutory usually characterized by supply shocks caused by authorities expire once invoked? infrastructure failure. Severe weather is the leading cause of such failures, and federal policymakers We conclude that these statutes do not provide are increasingly turning their attention to cyber and the authority this Administration seeks to prop up physical sabotage. economically failing coal plants. We first outline the extensive frameworks in place to ensure the Because genuine emergencies demand a swift and reliability of the electric grid. Then we survey decisive response, several federal laws consolidate the statutory authorities available to respond to limited emergency control over the industry in grid emergencies. Finally, we detail the Trump the Department of Energy (DOE) or the President, Administration’s proposals to support coal-fired temporarily empowering them to override existing law generation and explain why the emergency statutes and order actions inconsistent with the contracts, are a poor fit for these efforts. prices, or protocols that govern the industry’s day- to-day operations. These authorities, however, are narrow, as befits the nature of emergency response. Congress had specific types of threats in mind and limited the authorities granted to those needed to respond to a crisis. The statutes outline the conditions under which federal actors may assert emergency powers and enumerate those powers with specificity. Energy Emergencies vs. Manufactured Crises | Sharon Jacobs and Ari Peskoe 3 By the 1920s, utilities routinely connected to each Keeping the Lights On: other to facilitate energy transfers during outages or Resource Adequacy and to share generation resources to meet each utility’s resource adequacy needs.3 While sharing electric Operational Standards power is now a routine technical task, connecting neighboring utility systems involves much more than Reliable electric service requires that generation and simply plugging in. Supply and demand must be delivery resources sufficient to meet demand operate in balance, and the voltage, frequency, and other in compliance with industry protocols and market operating parameters of the shared system must rules. While these two components of reliability remain within safe limits.4 To maintain the stability – resource adequacy and operational standards – of their shared system, interconnecting utilities must were historically maintained with limited government coordinate their operations. oversight, today, the Federal Energy Regulatory Commission (FERC) is deeply involved. FERC Increasing interconnectedness led to new regulates interstate power markets that incentivize arrangements. Regional “power pools” facilitated steady power flows, approves and enforces reliability varying levels of cooperation and coordination standards, and has indirect authority over resource among utilities. Some power pool agreements adequacy in some regional markets.1 No other codified reliability standards among participants. federal government entity has authority relevant Such standards might have, for example, prescribed to the day-to-day provision of reliable electric for each utility the amount of generation capacity service. This section offers an overview of reliability that could be brought online instantaneously to regulation in order to contrast it with the emergency meet unplanned generator outages or demand authorities discussed in the next section. spikes.5 These private agreements were essential components of maintaining reliable electric service. Reliability Before Regulation In 1935, the federal government entered the field of utility regulation. Congress passed the Federal Historically, the federal government had no oversight Power Act (FPA), providing FERC with jurisdiction over over the nation’s interconnected electric networks. rates, terms, and conditions for electric transmission Electric utilities have a duty to deliver adequate and wholesale power sales in interstate commerce.6 service that is rooted in state or local laws.2 These The FPA explicitly denied federal regulators any laws sanctioned monopoly service territories for authority over “generation facilities” and specifically utilities on the condition that utilities deliver reliable prohibited FERC from “compel[ling] the enlargement service. In the industry’s earliest days, each utility of generation facilities” to facilitate energy transfers owned all of the infrastructure that generated and to another utility.7 Federal regulation of interstate delivered power to its ratepayers. Reliable service power lines focused on the rates utilities charged for was premised on each utility building and effectively service and did not generally intrude on operations. operating sufficient infrastructure. Energy Emergencies vs. Manufactured Crises | Sharon Jacobs and Ari Peskoe 4 As the scale of interconnected systems grew, the From 1995 to 2005, utility ownership of generation industry coalesced around technical standards declined from nearly 90 percent of total capacity and began to formalize their implementation.8 down to 63 percent as non-utility power producers In the 1960s, utilities